Takeaways from today’s meeting

Hello, Academy community! We know many of you are anxiously awaiting a report on today’s meeting on campus. Forum poster SDHeights kindly contributed the following summary:

I was at the presentation given today on the endowment. All numbers are from memory. The following points seem clear:

1) At the current burn rate, the school will indeed run out of money – they admitted it’s currently not sustainable.

2) Efforts are in place to trim the budget, increase fund-raising in an effort to keep the school above the waterline, but probably just above.

3) There is some buffer given existing real estate holdings that can potentially be sold at some point in the future, so the well is not dry yet.

4) They lost somewhere between $30M to $80M in hard investments during the crash (of ’08 – ’09 – ed.) (outside of real-estate investments) – let’s call it $50M for the sake of simplicity.

5) They purchased Mariposa for ~$5M based on multiple appraisals, had it appraised by a single company from Arizona, who appraised it at $~150M, and started operating the school like they had the inflated value.

6) The crash backed that number back down to the ~$20M range.

7) There is about $34M? in bond debt, that was used to build buildings and such.

8) The cost of servicing that debt is around $2M per year, set to increase starting this year, so the crunch will get worse.

The key failure that I see is not so much in the real-estate bubble bursting – that was pretty much all speculative money back and forth on the books. But the core $50M lost during the financial dip – that is what has brought them to their knees. It’s unclear how or why that massive loss occurred, where they were getting their financial advice from (if at all), and why it did not recover with the economy – they did not address this at all in the presentation.

In fact, it appeared that by continually mixing the “book” real estate losses with the core non-real estate losses in the presentation, there was an active effort to hide that underlying $50M loss.

The bottom line is that now they have a school that is oversized both from a management salary point of view (and a highly inflated ego that goes along with that), many very well paid admins, a large debt looming over their heads, and $50M less in the bank to cover it all.

I suspect that Mr. Watson is well past the point of really caring about staff morale when it comes to discussing financial matters (or any other matters); and this whole uproar is just a nuisance to him. But it is good to see the board opening up, and talking about some of these really difficult issues.